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Applications of Demand and Supply Analysis

  • J. Harvey
  • M. K. Johnson
Chapter

Abstract

If you have understood the analysis of the previous chapter, you should have no difficulty in following these simple applications. But there are two important points that you should bear in mind:
  1. (1)

    The demand and supply curves shown are merely diagrams to explain the basic principles of how the price mechanism works. This means that we can go no further than drawing implications as regards policy. Until we know the actual position and shape of the curves, we can make no precise forecast of how much price will change for a given change in demand or supply, how much demand will exceed supply at a controlled price, etc. Usually such precision is difficult, indeed impossible, to achieve.

     
  2. (2)

    The extent to which the laws of price are effective in practice depends upon how far our original assumptions, chiefly keen competition and a perfect market, apply.

     

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Copyright information

© J. Harvey and Janet Johnson 1994

Authors and Affiliations

  • J. Harvey
  • M. K. Johnson

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